Document

Document

San Diego  Amid growing calls to restrict or even ban certain expensive school bond deals, the president of the San Diego Unified school board will ask fellow board members to promise voters the district will not to use the controversial financing in a newly proposed bond measure.

Board President John Lee Evans said this week he will propose a resolution at the Sept. 4 meeting that would prohibit the use of long-term financing known as capital appreciation bonds, or CABs, for the proposed $2.8 billion Proposition Z bond measure on the November ballot.

The district has used the disputed financing mechanism recently and in years past which often requires a much larger payback than more traditional bonds — in one case more than seven times the principal.

Notably, San Diego Unified school officials obtained $165.7 million in August 2010 under a 40-year CAB deal at a cost of nearly $1.25 billion. Payments don’t begin until 2030 as interest compounds and the last payment is made in 2050.

The financing mechanism was thrust into the national limelight this month when reports surfaced that Poway Unified had obtained $105 million in bonds with the promise to repay investors $981 million under a 40-year CAB.

San Diego County Treasurer-Tax Collector Dan McAllister Tuesday called for new legislation to reign in CAB bond deals, a notion the state treasurer and some lawmakers in the region said they’d support.

“The new tax rate included in Proposition Z will allow the district to use regular current interest general obligation bonds,” Evans said in a statement. “Therefore, under Prop. Z, there should be no need for the district to make use of Capital Appreciation Bond financing.”

He added that his resolution will apply the “same fiscal discipline” to the bond as the district has asked of its teachers through concessions.

With much attention on Poway Unified’s bond deal, San Diego Unified has not garnered as much attention for its CAB deals.

Like Poway Unified voters, San Diego Unified voters were asked on the 2008 ballot if they would approve a tax extension rather than an increase for Proposition S. The new bond, Proposition Z, would raise property taxes by $60 per $100,000.

Just under $530 million of the district’s $2.1 billion Proposition S bonds have been sold to date, more than $446 million of which were CABs or convertible CABs.

Though the bulk of the Proposition S bonds have yet to be sold, the district is currently unable to sell them using conventional financing without exceeding the promised $66.70 per $100,000 assessed home valuation due to decreases in home values.

Last February, board members voted to issue $121 million in CABs to refund older Proposition MM bonds, some themselves CABs, at a cost of $482 million, or nearly four times the principal. Payments on those CABs begin in 2029 and end in 2041. The move stopped the county auditor from collecting taxes above the promised rate.

In late March, the district’s financial advisers Fieldman, Rolapp & Associates presented the board with three ways to issue new bonds without breaking the promised tax cap. Their options: 25-, 30-, or 40-year CABs. All three relied upon a 1 percent growth rate for the district’s assessed home values this year, and a 5 percent per year increase in the years that follow. The 40-year CAB offered the most upfront money and called for the highest repayment. Unlike its alternatives, the 40-year CAB also meant no delay for projects, board members were told.

On April 10, board members voted 4-1 to approve the 40-year CAB, with Scott Barnett dissenting. As a result, $150 million in 40-year CABs were sold in May, bonds that will cost $764 million, or more than five times the principal. Payments begin in 2032.

Despite his opposition to the CAB deal earlier this year, Barnett said this week he will not support Evans’ resolution if it is a strict promise to not use CAB financing.

“I am board member that is going to think about the prudence of not issuing CABs. At the same time, I will not support a blanket political statement to say ‘no never’ when I don’t know what the future holds,” Barnett said. “People say if we want to get the bond passed, we have to promise this. In my view, we have to be honest with the public. I would say almost surely we would never need a CAB with a tax increase,” adding, “If it doesn’t pass, and we say we will not use CABs, the whole construction program will shut down.”